AsnessEtAlWorkingPaper2009 - Value and Momentum Everywhere...

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Value and Momentum Everywhere Clifford S. Asness, Tobias J. Moskowitz, and Lasse H. Pedersen First Version: March 2008 This Version: June, 2009 Abstract We study jointly the ubiquitous returns to value and momentum across eight different markets and asset classes and explore their common factor structure. We find that value (momentum) in one asset class is significantly positively correlated with value (momentum) in other asset classes, and value and momentum are significantly negatively correlated within and across asset classes. Illiquidity risk is positively related to value and negatively to momentum, and its importance increases over time, with a sharp shift immediately following the liquidity crisis of 1998. All these findings emerge from the power of examining value and momentum everywhere simultaneously and are not easily detectable when examining each asset class in isolation. Asness is at AQR Capital Management. Moskowitz is at the Booth School of Business, University of Chicago and NBER. Pedersen is at the Stern School of Business, New York University, CEPR, and NBER. We thank Aaron Brown, Gene Fama, Kenneth French, Robert Krail, Michael Mendelson, Stefan Nagel, Lars Nielsen, Otto Van Hemert, and Jeff Wurgler for helpful comments, as well as seminar participants at the University of Chicago, Princeton University, Duke University, the Danish Society of Financial Analysts with Henrik Amilon and Asbjørn Trolle as discussants, and the NBER Summer Institute Asset Pricing Meetings with Kent Daniel as a discussant. We also thank Radhika Gupta, Kelvin Hu, Adam Klein, Ari Levine, Len Lorilla, Wes McKinney, and Karthik Sridharan for research assistance.
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Two of the most studied capital market phenomena are the relation between an asset’s return and the ratio of its “long-run” (or book) value relative to its current market value, termed the “value” effect, and the relation between an asset’s return and its recent relative performance history, termed the “momentum” effect. Value and momentum have proven to be strong predictors of returns in a variety of markets, and hence are the focus of many asset pricing studies. Theories for their existence, however, have yielded little consensus and range from rational risk-based frameworks to behavioral models with limited arbitrage. Much of this theory, and its associated empirical tests, predominantly focus on individual equities, particularly in the U.S., and treat value and momentum separately. While value and momentum have also been studied in other markets and asset classes, they are also typically studied in isolation and only one market at a time. We argue that much can be learned by examining value and momentum jointly across a variety of markets and asset classes simultaneously.
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AsnessEtAlWorkingPaper2009 - Value and Momentum Everywhere...

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